Quantifying the Unknown

 

While there are indeed many unknowns at play when bracing for an earthquake (or other natural catastrophe), there are also quantifiable expectations of what may happen to buildings or other assets. Whether a client is looking to assess a single property before buying, trying to decide what level of insurance to buy for their whole portfolio, or wanting to physically mitigate the risk, an engineering-based risk assessment can provide valuable information about potential earthquake losses and options for retrofit/mitigation. These studies can shed light on future damage, life safety risks, emergency response needs, and the extent of downtime following earthquakes and other natural disasters, enabling a client to understand and confidently manage their risks.

Christchurch, New Zealand - Moments after the February 2011 M6.3 Earthquake

The insurance industry has loss analysis models for quantifying losses for large portfolios, but an owner or corporation often wants a more site-specific and transparent engineering-based approach. Holmes uses engineering expertise and real-world experience from past events, combined with state-of-the-art hazard and loss models to rigorously assess and mitigate risks to:

– Buildings
– Equipment and Plant
– Contents
– Infrastructure
– Business Interruption

Our roots are in earthquake and fire risk, however we also have expertise and experience in hurricane, flood, and other natural hazards.

Understanding A Portfolio’s Potential Losses

 

In the commercial real estate industry, a typical Seismic Risk Assessment (SRA) performed by a professional engineer is for a single building, usually for due diligence or a lender requirement. There are established methods for doing these single-site SRAs, resulting in a probable maximum loss (PML) estimate (also known as an SEL or SUL). When there are multiple buildings at a single site, similar methods can be utilized to develop a PML for the combined buildings. However, for a portfolio of buildings in different geographic locations, simply adding the PML values becomes incorrect, and can result in a very conservative PML. A more sophisticated methodology is needed in the form of an earthquake loss analysis model.

An earthquake loss analysis model is a software program that estimates potential Building, Contents and Business Interruption losses by running an event set of possible earthquakes (tens of thousands) of all magnitudes on all faults, based on information developed by USGS (for the USA).

 

While insurance-based models have been developed and increasingly used within the industry over the last three decades, including a structural engineer in the loss modeling process can provide transparency and confidence in how the model is treating each building and ensure that the best available building vulnerability data is used in the model. In addition, there are alternative engineering-based portfolio analysis models that can be used to better incorporate specific aspects of each key building’s expected seismic response, based on engineering insights and analysis.

In addition to portfolio SEL and SUL values, typical deliverables include loss estimates associated with a range of return periods (e.g. 100-, 250, 500-years), as well as average annual losses (AALs). The effects of insurance (deductibles and limits) on the losses can also be shown.

Portfolio loss analyses can also include other hazards, such as tsunami, hurricane, storm surge, and flood. Integrating a strong engineering component into the loss modeling process can provide similar benefits for these hazards also.

Learn more about an engineering-based portfolio loss analysis here.

Safety, Downtime and Retrofit/Mitigation Considerations

 

In addition to loss estimates, many clients want a deeper dive, including a more specific understanding of the risks associated with buildings or assets, as well as retrofit and other mitigation options. For example a tech company or industrial client may want to identify high risk building(s) and equipment at their headquarters or key production and distribution facilities. Downtime may be a critical concern. For a university campus, the focus may be on understanding potential life safety issues and mitigation options, to incorporate into future renovation projects and master planning.

For these types of studies a phased approach is typically used, where Phase 1 is to assess the overall risk for all key components and identify general mitigation approaches, and Phase 2 then dives deeper into the mitigation options for high risk items. Phase 3 can include the actual design and implementation of selected retrofit or mitigation measures.

Typical deliverables can include a facility loss estimate as well as a ranking or grouping of buildings by safety risk (or downtime), and options for retrofit/mitigation of high-risk buildings, equipment and infrastructure.

Example Phase 1 Results showing Building Risk Ratings
Adequate anchorage of critical equipment such as steel tanks is important for good seismic performance
Storage racks can be a common seismic vulnerability, if inadequately designed and/or unanchored

A “Top Down” Approach

For some clients, it makes sense to start at an even higher/broader elevation than the portfolio loss analysis described first above. For example, a client may own or be investing in a range of assets across the globe that are exposed to varying natural hazards.  For these situations, a simple approach is to start by identifying the relative levels of hazard in each location where the client has exposure. This can incorporate best in class hazard data from expert sources in the USA and around the world.

Once key locations with high hazards are identified (including a heat map), a targeted approach can be used to further assess the risks, including estimating losses if desired, and/or developing mitigation options. Further information on Top Down approaches can be provided on request.

Develop a better understanding of the risks to your assets and manage them with confidence.

 

Contact:
Mark Ellis, Seismic Risk Specialist
James Rosewitz, Senior Engineer

Contact Mark & James

 

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